July 23, 2021

–Yields edged slightly lower on a quiet day with tens ending at 1.263%, down 1.7.  Eurodollar strip +0.5 to +1.5 out to golds. There continues to be large midcurve put buying.  Yesterday, a block of 40k 2EZ 9850 puts for 3.0 covered 9910.5 was notable, though it appears to be an exit and part of a larger shift of strikes occurring in 2EZ puts.  In any case, underlying EDZ’23 was the volume leader on the strip at 137k.  The 3EZ put buys earlier in the week were more clearly bearish for the longer end of the curve. 

–August treasury options expire today.  TYQ 132.25 straddle settled exactly at 16/64’s with futures currently printing 134-02, or 14/64 intrinsic.  With August expiring, more open interest should begin to build in Oct and Dec options.

–Wednesday brings the FOMC and tapering discussions.  The Fed’s goal of putting everyone back to work is laudable, but it’s hard to understand how continuing to buy MBS helps.  The more direct effect seems to be pricing buyers out of the market.  This from ZH: “Those looking for signs of a new housing bubble need look no further than today’s existing home sales report which showed that median prices of existing homes in the US soared 24% to a record $363,300.”  From an NBC news story: “My wife and I have been looking for a house for roughly the past year,” he said, adding that they have made multiple offers.  “On each of those, we had contractors or investment groups outbidding us on the properties.”  The title of that piece…”Who’s outbidding you on the home of your dreams?  A hedge fund.”

–We’re all aware of the spectacular rise and fall of lumber, but I had never looked at coal until it was mentioned in the same article as coffee (which has exploded higher on frost in Brazil) by Cameron Crise of BBG.  According to a chart on Trading Economics, Coal (XAL1) has gone from 50 in September to 150 this month.  Burning coal produces electricity, which of course, provides power for green electric cars.  Maybe it’s all related to the Fed PUMPING OUT TOO MUCH MONEY, which makes a lot of dumb ideas look pretty smart until the tide goes out.

Posted on July 23, 2021 at 5:46 am by alexmanzara · Permalink
In: Eurodollar Options

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